Futures Now

Jobs shocker may show that economy is in real trouble

Into the futures: Best moves for the week ahead
Into the futures: Best moves for the week ahead

In the wake of March's tepid jobs creation, it may be time to take a harder look at this soft patch.

Even ahead of Friday's employment report, concerns were mounting about a growing pile of weak data. JPMorgan's economic research team cut their first quarter GDP growth forecast to a mere 0.6 percent on Thursday, citing poor consumer spending data.

Recent manufacturing data have also looked especially bad, with the ISM manufacturing index's March reading showing the slowest growth since May 2013. Separately, housing market indicators have been mixed, perhaps due to the harsh winter weather.

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Amid all of the concerns, many economists have held out hope because of the string of strong employment reports, which have indicated that growth remains strong where it matters most.

Now, that story changed after the Bureau of Labor Statistics reported that a mere 126,000 jobs were created in March, compared to broad expectations of another 200,00-plus report.

"While the jobs report was disappointing, in some ways it confirms what we already know," commented Marc Chandler, global head of currency strategy with Brown Brothers Harriman. "The U.S. economy slowed markedly in Q1 2015."

In the 45 minutes of futures trading that followed the report (which was released on a day when the stock market was closed for the Good Friday holiday) S&P 500 futures fell by 1 percent, while bond futures marched higher. In the currency market, the fell sharply across the board.

While the jobs number may have somewhat shifted expectations about when the Federal Reserve will raise short-term interest rates, these moves are all consonant with shifting perceptions of the American economy—and not with shifting expectations about the Fed. After all, with all else being equal, a more dovish Fed would be good rather than bad for stocks.

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The coming 'freak out'?

Traders work the floor of the New York Stock Exchange.
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For Brian Stutland of Equity Armor Investments, the jobs disappointment couldn't come at a worse time. Earnings season is around the corner, and analysts are already predicting an earnings decline.

"You have to worry about whether valuations are correct if earnings are flat to down," Stutland said. "Investors are going to freak out if earnings turn negative, and you could see a snowball effect."

Read MoreBad jobs Friday to weigh on Monday

The trader consequently predicts a "big flight to safety" in the week ahead, which may ultimately benefit bonds and the greenback.

Chill out, others say

However, some economists caution against making too much of the report, arguing that it doesn't imperil the case for a spring snap-back in the second quarter.

While granting that "March employment figures were disappointing across the board," Societe Generale economist Aneta Markowska notes that the economy still created an average of 197,000 jobs per month in 2015. She predicts that the dour March report clears the way for a 300,000-plus April number.

Chandler writes that "the US economy is not slipping back into a recession," arguing that the weakness can be pinned on "transitory" factors like the weather.

And indeed, RBC Capital Markets economist Tom Porcelli says weather may have played a significant role in the employment softness.

He pointed to the weakness in weather-sensitive sectors like leisure/hospitality and construction, the dip in average weekly hours, and the high number of workers not at work due to bad weather (which, to be sure, are still counted as employed). Porcelli added that "the fact that these weather-sensitive metrics all slipped sharply on the month is either a huge coincidence, or weather did indeed influence the numbers."

Since the numbers aren't "clean," the economist maintains that "there is enough skepticism about the weakness of this report that it inhibits forming a weakening jobs backdrop narrative."

Alternately, for Chicago-based trader Scott Nations, "while this number is disappointing, that's only in relation to what was expected."

Indeed, expectations about the American economy seemed to be running quite high before the first-quarter data started coming in. For the investors that may have continued to hold out hope for a stable upward growth trajectory, this jobs report leaves little choice but to rethink their economic forecasts.

—By CNBC's Alex Rosenberg.

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